Supreme Court reaffirms that in bogus purchase cases estimation of profit element is valid

The assessee, an individual engaged in diamond trading through his proprietorship concern, filed his return for AY 2013–14 declaring modest income. Based on information from a search conducted on the Gautam Jain Group, the Assessing Officer alleged that the assessee had taken accommodation entries in the form of bogus purchases. Despite furnishing invoices, bank statements, and stock records, the AO treated purchases exceeding Rs. 4.44 crore as non-genuine and added the entire amount to income.

On appeal, the CIT(A) granted partial relief by restricting the addition to 5% of such purchases. The ITAT, after considering comparable cases and profit margins, slightly modified the disallowance rate. However, the Gujarat High Court dismissed the assessee’s appeal, holding that the findings were purely factual and did not give rise to any substantial question of law.

Main Issue: Whether the addition on account of alleged bogus purchases and findings of accommodation entries warranted interference by the Supreme Court, particularly in light of substantial delay in filing the SLP.

SC’s Decision: The Supreme Court dismissed the Special Leave Petition on both procedural and substantive grounds. It noted an inordinate delay of 750 days in filing the petition, which remained inadequately explained by the petitioner. On this ground alone, the Court found no justification to condone the delay.

Even on merits, the Court declined to interfere with the Gujarat High Court’s judgment. It observed that the High Court had affirmed findings based on appreciation of evidence, including material gathered during investigation into accommodation entry providers. Such findings, being factual in nature, did not warrant interference under Article 136. Therefore, the SLP was dismissed both on account of delay as well as lack of merit, and all pending applications were disposed of.

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